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Office Market Pulse Cambridge Q1 2014

Our latest Cambridge Office Market Pulse shows that demand levels have fallen in the Cambridge office market for the third consecutive quarter, down 17% on Q4 2013. There was a total of 90,936 sq ft of office take-up in Cambridge in Q1 2014, which was a 47% reduction on Q1 2013. Available office space in Cambridge fell by a further 12% to just 585,400 sq ft, while on the investment front regional markets received more attention from investors, as prime central London prices continue to rise.

Take-up struggles to keep pace with record year

• There was a total of 90,936 sq ft of office take-up in Cambridge in Q1 2014, which was a 47% reduction on Q1 2013

• Just three deals comprised 66% of the total amount transacted, belying a median of just 2,808 sq ft

• Science Park space accounted for 57,547 sq ft of take-up so it is no surprise that the ever dominant Technology, Media and Telecommunications (TMT) and Pharmaceutical occupiers provided for 78% of acquired office space

• Demand levels have fallen in the Cambridge office market for the third consecutive quarter and are down 17% on Q4 2013 levels

• Critically low levels of available office space in Cambridge will naturally drive rental growth and a reduction in incentives offered by landlords during the course of 2014

Availability crisis

• During Q1 available office space in Cambridge fell by a further 12% to just 585,400 sq ft with only three buildings on offer in excess of 20,000 sq ft

• Pre-letting activity accounted for three of the four largest deals in 2013 and to date in 2014 we are aware of pre-let discussions which will result in some 185,000 of laboratory space being transacted and constructed

• Speculative office development is set to return to Cambridge following the announcement of Orchard Street’s funding of Brookgate’s 142,000 sq ft mixed use development, One The Square, CB1

• The general trend of occupiers moving towards more agile working environments (fewer workstations but more work places) will perhaps be forced on occupiers through floor space efficiency pressures

Cambridge investment update

Investment in the UK commercial property sector during the first quarter of 2014 totalled £10.9bn – a 35% increase on the corresponding period last year and the third highest quarterly level since the start of 2007. Regional markets are receiving more attention from investors, as prime central London prices continue to rise. Investment in the regions more than doubled to £4.2bn, compared to £2bn during the first quarter of 2013, and now accounts for 39% of the total, against 25% in the corresponding period last year and 33% during the final quarter of 2013.

The final quarter of 2013 saw over £50m of investment transactions in the Cambridge office market. This included the following transactions:

Vision Park, which was purchased by Royal London Asset Management from JP Morgan Asset Management for £28.5m in December 2013. The Park is let to a number of financial and pharmaceutical companies and produces a rent of £1,825,940 per annum over the 89,889 sq ft. The transaction reflects an initial yield of 6.1%.

Mount Pleasant House, which comprises 42,000 sq ft of multi-let space in the city centre. The property currently produces £741,000 per annum and was purchased by Howard Property Group Osborne Developments from USS for £10.655m. The deal that completed in December 2013 reflects an initial yield of 6.56%.

Broers Building comprises 41,807 sq ft with a WAULT of 4.0 and was purchased in November 2013. The property was brought by a Private Investor from Sackville Properties ltd for £13.312m, which reflects an initial yield of 6.71%.

The demand for investment opportunities remains strong due to the limited availability of Grade A stock in the market. This is demonstrated by the completion of the forward funding for One Station Square by Orchard Street IM. The development will include 141,998 sq ft of office and was purchased for £80m in February 2014.